IRS_Chapter_12.pdf

[Source: IRS.gov, 11-13-06. The document is brought here as-is in its entirety]

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12. Electric and Clean-Fuel Vehicles

Table of Contents

• What's New

• Introduction

• Useful Items - You may want to see:

• Deductions for Clean-Fuel Vehicle and Refueling Property

• Deduction for Clean-Fuel Vehicle Refueling Property

• How To Claim the Deductions

• Recapture of the Deductions

• Basis Adjustments

• Electric Vehicle Credit

• Qualified Electric Vehicle

• Amount of the Credit

Page 1 of 14 pages

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 News

• Reminder

• Topics - This chapter discusses:

• Definitions

• Deduction for Clean-Fuel Vehicle Property

• How To Claim the Credit

• Recapture of the Credit

What's New

Clean-fuel vehicle and refueling property deduction. The clean-

fuel vehicle and refueling property deduction will expire for vehicles

placed in service after December 31, 2005.

Alternative motor vehicle credit. The Energy Policy Act of 2005

added a new credit for alternative motor vehicles placed in service

after 2005. For details, see Form 8910, Alternative Motor Vehicle

Credit.

Reminder

Maximum qualified electric vehicle credit. The maximum qualified

electric vehicle credit will be 25% of the otherwise allowable amount in

2006.

Introduction

You are allowed a limited deduction for the cost of clean-fuel vehicle

property and clean-fuel vehicle refueling property you place in service

during the tax year. Also, you are allowed a tax credit of 10% of the

cost of any qualified electric vehicle you place in service during the tax

year.

You can take the electric vehicle credit or the deduction for clean-fuel

vehicle property regardless of whether you use the vehicle in a trade

or business. However, you can take a deduction for clean-fuel vehicle

refueling property only if you use the property in your trade or

business.

Topics - This chapter discusses:

 The deduction for clean-fuel vehicle property

 The deduction for clean-fuel vehicle refueling property

 Recapture of the deductions

 The electric vehicle credit

Page 2 of 14 pages

• Basis Adjustments

 Recapture of the credit

Useful Items - You may want to see:

Publication

 463 Travel, Entertainment, Gift, and Car Expenses

 544 Sales and Other Dispositions of Assets

 946 How To Depreciate Property

Form (and Instructions)

 8834

Qualified Electric Vehicle Credit

 8910 <<< this form is attached on the CD

Alternative Motor Vehicle Credit

See chapter 14 for information about getting publications and forms.

Definitions

The following definitions apply throughout this chapter.

Clean-burning fuels. The following are clean-burning fuels.

1. Natural gas.

2. Liquefied natural gas.

3. Liquefied petroleum gas.

4.Hydrogen.

5. Electricity.

6. Any other fuel that is at least 85% alcohol (any kind) or ether.

Motor vehicle. A motor vehicle is any vehicle that has four or more

wheels and is manufactured primarily for use on public streets, roads,

and highways. It does not include a vehicle operated exclusively on a

rail or rails.

Nonqualifying property. This is property used in the following

ways.

1. Predominantly outside the United States.

2. Predominantly to furnish lodging or in connection with the furnishing

of lodging.

Page 3 of 14 pages

3. By certain tax-exempt organizations.

4. By governmental units or foreign persons or entities.

Deductions for Clean-Fuel Vehicle and Refueling Property

You are allowed a limited deduction for the cost of clean-fuel vehicle

property and clean-fuel vehicle refueling property. These deductions

are allowed only in the tax year you place the property in service.

You cannot claim these deductions for the part of the property's cost

you claim as a section 179 deduction. For information on the section

179 deduction, see Publication 946.

Deduction for Clean-Fuel Vehicle Property

The deduction for this property may be claimed

regardless of whether the property is used in a trade or

business.

Clean-fuel vehicle property. Clean-fuel vehicle property is either of

the following kinds of property.

1. A motor vehicle (defined earlier) produced by an original equipment

manufacturer and designed to be propelled by a clean-burning fuel.

These include designated hybrid gas-electric automobiles which, at

this time, only include the Ford Escape Hybrid, Honda Accord Hybrid,

Honda Insight, Honda Civic Hybrid, Lexus RX 400h, Mercury Mariner

Hybrid, Toyota Highlander Hybrid, and Toyota Prius. Those

designated automobiles do not qualify for the electric vehicle credit.

For other than those designated automobiles, the only part of a

vehicle's basis that qualifies for the deduction is the part attributable

to:

a. A clean-fuel engine that can use a clean-burning fuel,

b. The property used to store or deliver the fuel to the engine, or

c. The property used to exhaust gases from the combustion of

the fuel.

2. Any property installed on a motor vehicle ( including

installation costs ) to enable it to be propelled by a

clean-burning fuel if:

a. The property is an engine (or modification of an engine) that

can use a clean-burning fuel, or

Page 4 of 14 pages

b.The property is used to store or deliver that fuel

to the engine or to exhaust gases from the

combustion of that fuel.

For vehicles that may be propelled by both a clean-

burning fuel and any other fuel, your deduction is

generally the additional cost of permitting the use of

the clean-burning fuel.

Clean-fuel vehicle property does not include an electric vehicle that

qualifies for the electric vehicle credit, discussed later.

Qualified property. Your property must meet the following

requirements to qualify for the deduction.

1. It must be acquired for your own use and not for resale.

2. Its original use must begin with you.

3. Either—

a. The motor vehicle of which it is a part must satisfy any federal

or state emissions standards that apply to each fuel by which

the vehicle is designed to be propelled, or

b. It must satisfy any federal and state emissions certification,

testing, and warranty requirements that apply.

4. It cannot be nonqualifying property, defined earlier.

Deduction limit. The maximum deduction you can claim for

qualified clean-fuel vehicle property with respect to any motor

vehicle is one of the following.

1.$50,000 for a truck or van with a gross vehicle weight rating over

26,000 pounds or for a bus with a seating capacity of at least 20

adults (excluding the driver).

2.$5,000 for a truck or van with a gross vehicle weight rating over

10,000 pounds but not more than 26,000 pounds.

3.$2,000 for a vehicle not included in (1) or (2).

Page 5 of 14 pages

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